Question

Practice Exercise 8-04 Presented below is information related to Larkspur, Inc. Price Index Date End-of-Year Inventory (End-of-Year Prices) $1,230,000 1,554,000 1,562,000 1,848,600 100 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 105 110 117 Compute the ending inventory for Larkspur, Inc. for 2017 through 2020 using the dollar-value LIFO method. Ending Inventory 2017 $ 1230000 2018 $ 2019 $ 2020 $

Answer 1

Answer)

Calculation of cost of ending inventory at December 31, 2021 using dollar-value LIFO method

Calculation of changes in inventory from previous year

Date	Inventory at year end prices	Price Index (Percentage)	Inventory at base year prices	Change from previous year
December'31, 2017	$1,230,000	100	$1,230,000	-
December'31, 2018	$1,554,000	105	$1,480,000	$250,000
December'31, 2019	$1,562,000	110	$1,420,000	($60,000)
December'31, 2020	$1,848,600	117	$1,580,000	$160,000

Value of inventory:

December 31, 2017:

Value of ending inventory = $ 1,230,000 X 1.00

                                               = $ 1,230,000

December 31, 2018:

Value of ending inventory = ($ 1,230,000 X 1.00) + ($ 250,000 X 1.05)

                                               = $ 1,230,000 + $ 262,500

                                               = $ 1,492,500

December 31, 2019:

Value of ending inventory = ($ 1,230,000 X 1.00) + ($ 190,000 X 1.05)

                                               = $ 1,230,000 + $ 199,500 (refer note)

                                               = $ 1,429,500

December 31, 2020:

Value of ending inventory = ($ 1,230,000 X 1.00) + ($ 190,000 X 1.05) + ($ 160,000 X 1.17)

                                               = $ 1,230,000 + $ 199,500 + $ 187,200

                                               = $ 1,616,700

Note: in the year ended December 31, 2019, the change of inventory value at base year prices from December 31, 2018 is negative (i.e. $ 60,000). Therefore even for the year ended December 31, 2019, year ended December 31, 2017 is taken as base year and change of inventory at base year price in 2019 vis-à-vis 2017, $ 190,000 (i.e. $ 1,420,000 - $ 1,230,000) is multiplied with price index of the year 2018.